Oversupply of Old Failed Ideas, Undersupply of New Pragmatic Ideas (July 16, 2010)

We suffer from a massive oversupply of tired old ideas which have
long outworn their utility, and a dearth of new pragmatic ideas founded on the
present and near-term future.

In terms of supply and demand, we face a complete oversupply of tired old ideas
which have failed for fundamental reasons, and a strong unmet demand for new
pragmatic ideas based on the present realities.

At the risk of stating the "obvious" which is not at all obvious in the current
politics of experience: if any of these tired old ideas retained any utility,
they would have already worked.

if Keynesian or neo-Keynesian stimulus via Central State/Savior State borrowing
and spending was the solution to the Great Recession, it would have worked by
now. Instead, the private economy continues to shrink. The Keynesian Project
and idea is a failure. Look at personal income, minus government transfers:

Many will argue that we need another couple years of the same borrow and spend to
create private demand, but this is fundamentally flawed. Private demand is intrinsically
hobbled by two factors:

2. The 75% of U.S. households who are above the poverty line already own everything
anyone could possibly need for a wonderful, fulfilled lifestyle. That is the dirty
little secret not just of the Keynesian Idea but of post-industrial Neoliberal Global
Capitalism.

I devote a considerable amount of the Survival+ critique to the entire notion that "demand" for more stuff
and services is actually as endless, beneficial and fulfilling as the
relentless media-marketing machine would have us believe. The causal connection between
ever-rising consumption and individual happiness is actually weak to non-existent;
beyond a rather modest level (clean water, warm place to sleep, sufficient calories
to eat, etc.) then the factors which leverage human happiness and fulfillment
are relationships (friends, etc.) and meaningful work.

So the explicit premise of the entire Keynesian Project--that private demand for
more consumption is the foundation of "prosperity," and thus all we need to do is
lavish enough money on consumers to spark their insatiable appetite for more, more,
more of anything and everything--is doubly bankrupt: there are limits on private
"organic" demand (i.e. demand which isn't created by giving everyone $3,000 to
buy a new car, etc.) both financially (most American households have too much debt
and not enough surplus income and/or assets to justifiy more borrowing and splurging)
and intrinsically: another thousand songs on your iPod, another
pair of shoes, another session at the nail salon--none of it actually adds much to
human fulfillment or happiness.

Beyond a modest level, consumption is the classic
example of diminishing returns: you keep spending more but enjoying it less.
At the end, ennui, alienation and exhaustion replace enjoyment. An addictive
cycle of consumption, dissatisfaction and a derangement devoid of self-awareness takes hold.

Indeed, it can be argued that our entire economy of consumption is more a systemic
cultivation of addiction
than a system based on fulfilling human needs and "the pursuit of happiness."

So many proponents of the Keynesian Idea refer back to the 1930s as the testing field
for their "solution" of fiscal and quantitative stimulus (easing of interest rates and
availabililty of credit).

Yet so many fundamental factors in the present were not factors in the 1930s. To
name but a few: global wage arbitrage was not much of a factor, and it certainly is
a key determinant of U.S. household income now. If the U.S. fails to create
real products and services with a high market value in the global market, then
U.S. wages will trend to the wage levels in lower-value producers.

You can borrow and spend all you want, but if incomes are declining for structural reasons,
along with assets deflating from credit bubbles, then you are shoveling sand to
hold back the tide. Rising debt loads require rising incomes. Without rising incomes,
rising debt leads to insolvency. That is "obvious," yet it is not something Keynesians
can admit, lest their entire Project be revealed as intrinsically flawed.

In the 1930s, the Federal government and the household held very modest levels of
debt. Thus a borrow-and-spend frenzy to fund a global war (World War II) was
possible because the borrowing began from a very low basis.

Before the 1929 stock market crash, Federal regulation of the financial industry
was light to non-existent. Thus a move as simple as guaranteeing savings deposits
in banks (the FDIC) had enormous leverage because it filled a void.

If additional regulation would have fixed the U.S. economy at a fundamental level,
it would have already done so. It hasn't, and the reason is marginal returns.
In the 1930s, tens of thousands of people were put to productive work for very modest
sums of money, even when adjusted for inflation.

Now, politically influential unions and private contractors would kill off any large-scale
work projects, demanding instead that repairing roads, etc. go to private corporations
seeking hefty profits and union labor which costs $100,000 or more per worker.

This is how we reach the absurdity that the Federal Stimulus package has "saved"
(supposedly) thousands of jobs at an average cost of $323,000 per job.

So in an economy with 131 million jobs and 150 million workers, then a $787 billion
Keynesian stimulus project has created or saved less than .5% of the nation's jobs.
That is a horrendously marginal return.

Lastly: the Keynesian Idea has failed because the Central State has taken over
such a large share of developed nations' incomes and GDP. The U.S. government
has borrowed and spent trillions of dollars in so-called "prosperity" supporting
a global empire and various forms of crony capitalism/cartels, monopoly capital
and protected State fiefdoms (prison guard unions, sick-care cartels, "defense"
contractors, etc.) The amount of leverage offered by another trillion dollars or so
for a State which spends $3.5 trillion is marginal.

If "quantitative easing" was indeed the solution for what ails the U.S. economy
and its parasitic, supremely politically powerful financial industry, then it
would have already worked.

If lowering the taxes of the top 1% of households and dropping the tax rates on
speculative income while leaving the rates on productive income quite high would
have actually created widespread prosperity via the "trickle down" theory, then
it would have done so already. It hasn't, so that scheme so dear to the hearts
and pocketbooks of Republicrats has failed, completely and utterly. Income
disparity has leaped and while the productive high-income earners pay most
of the taxes, the unproductive financial parasites reaping speculative gains
via gaming the system and fraud pay a mere 15% on their $600 million per year "earnings."

The level of propaganda is so pervasive that few citizens seem to grasp how
the two parties are indistinguishable at the level of global Empire and neoliberal
Monopoly Capitalism. "Healthcare" may or may not be a "right," but the "healthcare
reform" was about one thing and one thing only, and it wasn't healthcare for a nation of
afflicted, addicted, media-marketing-addled "consumers": it was about retaining and extending the
sick-care cartel's share of the national income.

The global Empire has run for decade after decade on the premise that "it's not a
very good war, but it's the only one we got." Democrats and Republicans alike have
started and extended war after war in service of commercial, political and military
Empire with largely unseen "soft" and "hard" power assets.

Now that most Chinese youth think Kentucky Fried Chicken is Chinese, the Empire
has already won the commanding heights via "soft power" and dollar hegemony. There is
no need for a war when the Colonel has already occupied hearts, minds and pocketbooks.

The idea that either of the Plutocracy's two political flavors will ever
conceive of, much less enact, meaningful restrictions on the American Empire or
its cartels, has failed. If either party had any "big ideas" that weren't just
facsimilies of reform to divert and distract attention from the ever-increasing
wealth and power of a small Elite served by a well-paid High Caste army of
technocrats, then they would have done so. Thay haven't, so that idea has failed.

The demographic realities of a shrinking workforce and rising cadre of
retirees dooms the entire Social Welfare State idea. The conceit of the
Social Welfare State--that the State can provide retirement and healthcare for 40% of
its citizenry by heavily taxing the 40% who are working in taxpaying jobs
(as opposed to the cash/no-tax economy) will be proven false. Proponents keep
claiming that minor tweaking of parameters will make this idea work: extend
retirement age by a few years, increase the tax a few points, etc.

The truth is that minus credit bubbles and expential expansions of credit to
fuel consumption frenzies/addictions, the post-industrial U.S. economy
has no need for 130 million (highly paid) workers. Just as we don't need any
more houses (we have 19 million vacant ones) or malls or office towers, we
also have no real work for people to do in these vacant malls and offices.

As I have often noted, Twitter has about 250 employees, Facebook has about 1,200.
Social media may be fun but it isn't going to generate millions of jobs.

The entire Idea of a global Empire based on dollar hegemony feeding an endlessly
expanding economy of consumption, extravagance and excess is bankrupt.

Here is one of the best summaries of the real U.S. economy and political structure,
exerpted from the excellent John Mauldin's newletter of 5/6/10:

The greatest systemic risk, therefore, is not an economic concept but a political
one. (emphasis added-CHS)
Systemic risk emerges when it appears that the political and legal protections given
to economic actors, and particularly to members of the economic elite, have been used
to subvert the intent of the system. In other words, the crisis occurs when it appears
that the economic elite used the law's allocation of risk to enrich themselves in
ways that undermined the wealth of the nation. Put another way, the crisis occurs
when it appears that the financial elite used the politico-legal structure to enrich
themselves through systematically imprudent behavior while those engaged in prudent
behavior were harmed, with the political elite apparently taking no action to protect
the victims.

Now we are at the heart of the matter, and the reason why I wrote
Survival+. A political-financial system
reaches its terminal stages by investing more and more to extract
increasingly marginal returns.

By basing Survival+ on the simple query, cui bono--to whose benefit?--
I am attempting to describe a dynamic which I consider ontological, that is,
inherent to all human social structures: as the system's foundations crumble
via increasingly marginal returns, the system/Empire's Power Elites face a stark
choice: either institute real reforms which reduce the Elite and its constituencies'
share of the Imperial income, or launch a marketing/propaganda drive to create the
illusion of reform.

In this terminal stage, the Power Elites erect one facade and facsimile of reform
after another, each one heralded as the "fix" the nation-state or Empire so desperately
needs to return to "the good old days" of seemingly unlimited power and prosperity.
All are shams, carefully designed and marketed simulacra of actual change.

These monumental efforts at creating the illusion of reform have an immediate payoff:
the Power Elites remain solidly in power, and their share of the nation's income and
wealth actually increases as the majority of citizens sink deeper into various stages of
poverty.

Eventually, of course, the system comes apart at the seams, because facades, illusions
and sham reforms have not actually fixed any of the marginal returns or fundamental
problems eroding the system/Empire. Eventually the State/Empire collapses.

Do we cling so tightly to these ideologically appealing, quasi-religious failed
ideas because we
fear not having any replacement ideas? Or do we cling to these failed ideas because
we fear the decline of the Power Elites and the Empire? Or are we suffering from
a grand failure of
imagination, as I have suggested here before?
Questioning "Progress" and the Poverty of our Imagination
(June 11, 2010) .

I hope it is the latter.

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